Holly and Marcus formed a partnership.Holly received a 50% interest in partnership capital and profits in exchange for contributing land (basis of $20,000 and fair market value of $100,000).Marcus received a 50% interest in partnership capital and profits in exchange for contributing $100,000 of cash.Three years after the contribution date,the land contributed by Holly is sold by the partnership to a third party for $120,000.How much taxable gain will Holly recognize from the sale?

Question

Quizplus · Accepted Answer

When Holly contributed the land to the partnership, her basis was $20,000. However, when the partnership sells the land for $120,000, her share of the partnership's gain is calculated using the fair market value of the land at the time of contribution, which is $100,000. Therefore, her share of the gain is $20,000 (her share of the proceeds) - $100,000 (her adjusted basis) = -$80,000. Since her share of the partnership's loss exceeds her basis in the partnership ($50,000), Holly will recognize a capital gain of $80,000 on the sale of the land.

Holly and Marcus Formed a Partnership